As the first named storm of the 2022 hurricane season – Alex – is already leaving its mark on Key Biscayne and all of South Florida, turmoil in the state property insurance market continues to escalate. .
Tens of thousands of Florida homeowners are scrambling to find coverage as the insurance industry grapples with “an existential challenge,” as described by a leading financial ratings agency.
Southern Fidelity, which announced May 26 that it would roll back existing policies and not write new ones, was downgraded last week by financial stability rating agency Demotech, essentially putting it out of business in Florida.
The Florida Office of Insurance Regulation said the company is trying to place at least some of its 78,000 policyholders with other insurers.
Meanwhile, FedNat, Monarch and Maison, all part of FedNet Holding Company, are canceling 68,200 of their landlord and tenant policies on June 29, according to a consent order negotiated with the Office of Insurance Regulation. State.
Industry experts say other Florida insurers could lose the credit ratings that allow them to operate here, if reinsurance companies continue to avoid Florida and its frequent and costly claims.
The Southern Fidelity news follows a series of business bankruptcies and policy cancellations this year by a dozen Florida insurers that left tens of thousands of policyholders scrambling to find coverage then and now. in the hurricane season which began on June 1.
Many who still have coverage are already paying more for it and still face steep rate increases unless their carrier chooses to tap into a state program providing $2 billion in public funds to tide them over. .
In this case, the carrier is required to file a request for a fare decrease by June 30, although the new legislation creating this option does not define the decrease or when it must take effect. Legislative sponsors estimated that rate increases would not be felt for 12 to 18 months.
Until Monday, the Office of Insurance Regulation said no company had yet filed such a case.
Rating agency AM Best last week announced that it believes new property insurance laws passed by the Florida Legislature in a special session in late May will not reverse the downward spiral for the foreseeable future. , leaving owners with a few unconventional options.
“AM Best believes that despite property insurance reform recently enacted in Florida, property insurers will continue to face near-term financial challenges,” the agency said in “Best’s Commentary.” .
“As reinsurance companies have become risk averse in Florida, many major carriers that rely on reinsurance still face an existential challenge.”
In search of a safe harbor
Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform, said homeowners whose P&C policies have been canceled should contact their official insurance agent immediately to seek new coverage. If the agent on file cannot locate a new policy, he said, call several agents who may be affiliated with other insurance companies. (Note: Flood insurance is separate from property and casualty insurance.)
Premiums in Florida far exceed the national average and vary wildly from north to south, with homeowners in Dade County paying an average of $7,000 a year and those in Duval County paying less than $2,000, according to Insurify, a site insurance sales.
“We are entering one of the most severe and active hurricane seasons,” Handerhan said, urging homeowners not to delay as cover is getting harder to find and more expensive.
If no private coverage can be guaranteed, many homeowners will qualify for safe harbor from Citizens Property Insurance Corp., the state-run insurer of last resort.
“Citizens operates like any other company, but is less restrictive than other carriers,” spokesman Michael Peltier said. “We go through independent agents. Talk to agents if you face non-renewal.
Peltier said there’s plenty of room in Citizens for homeowners who have lost coverage, but not everyone is eligible.
Homes valued at no more than $1 million in Dade and Monroe counties and no more than $750,000 elsewhere in Florida may be considered insurable under more lenient citizen criteria.
Disqualifiers, Peltier said, include more expensive homes, homes with roofs near the end of their life expectancy, and homes for which comparable coverage is available elsewhere at a lower cost than citizens would need.
“If you qualify for subscription, what we find is that we’re really the cheapest option 95% of the time,” Peltier said. “Don’t panic. Chances are you can get in.
That doesn’t mean homeowners will save money, though, as premiums through Citizens Property Insurance reflect rate increases affecting the entire industry in Florida. Peltier attributes the increases to rising costs to replace or repair damaged homes, increasingly severe weather conditions and soaring property value growth in Florida.
Registrations for Citizens have doubled in two years as private insurance companies have gone bankrupt.
Peltier said Citizens had 860,000 policyholders last week and expects to reach more than 1 million by the end of the year, even though it “doesn’t want to be the biggest” in Florida. As designed by Florida lawmakers, Citizens is designed to serve as an insurer of last resort, and its financial stability rests in part with Florida taxpayers. If necessary to balance its books, Citizens can impose a 15% assessment on its own policyholders, and other triggers are in place that can lead to statewide assessments on other policyholders.
Florida lawmakers hope to stabilize the insurance industry to bring homeowners back into private insurance companies and out of citizens. But their efforts in special session last month are widely seen as too little too late to halt the exodus of reinsurance companies that primary insurers rely on to back them up financially. The legislation must also withstand challenges in court, with two lawsuits already underway.
Peltier and Handerhan said it will take a few more days to know whether reinsurers will rush in and save the day, or, like Southern Fidelity, other insurance companies will fail to obtain reinsurance, lose their credit ratings. and will fail.
At least three companies said they were able last week to get the reinsurance cover they need for 2022-23, according to trade publications including Insurance Journal and Artemis. These include Universal Property & Casualty, Heritage Insurance and People’s Trust.
Others had yet to disclose their status.
Owners who don’t qualify for Citizens can then apply for coverage in “Excess and Excess Lines” – specialized insurance that covers risks that standard carriers won’t cover. While companies that offer such lines are regulated in their home state, the Office of Insurance Regulation considers them “unadmitted or unlicensed carriers” in Florida, exempting them from certain state benefits and costing often more expensive than standard insurance lines.
If that search ends in a dead end, Handerhan said, there are no good options left, which means some homeowners would lose their homes.
“If that happens, you’re in really bad shape,” he said. Homeowners with mortgages would be “forced” by their banks to purchase high-cost insurance policies that only cover the balance of the mortgage. Such arrangements often lead to foreclosures, according to Floridians for Honest Lending, a Florida Association for Insurance Reform partner that offers advice to consumers.
Finally, homeowners who own their homes are not required to have policies and can instead self-insure, meaning they would pay for all damages out of pocket.
All Florida homeowners, insured or uninsured, would do well to fortify their homes with premium roofs and highly wind-resistant windows, doors and garages to minimize or prevent storm damage, a said Handerhan. (These fortifications won’t help much in the event of a fire.) Only work with established local contractors on home reinforcement projects, he advised, as it’s difficult to hold non-locals accountable for work. poor quality or incomplete.
The Florida Association for Insurance Reform and Floridians for Honest Lending recommend these resources for homeowners:
Florida’s Property Insurance Crisis: Part 05 – Solutions – YouTube.
Homeowners Assistance Fund | US Treasury Department.
This story appeared on the website of the Florida Phoenix, a nonprofit news organization dedicated to covering state government and Tallahassee politics. You can visit them by clicking here.